Agenda and minutes

None.

None. It was noted that Andrew Smith, External Auditor for Grant Thornton, will leave the room for item 10 - Appointment of External Auditor.

To confirm the minutes of the meeting held on 25 November 2022

Committee Members requested that the minutes for 28 October 2022 be made available.

Committee Members requested an amendment to Minute 52, to reflect their concern about checks and balances on the commercial director for business cases, and that this would be a matter of interest for the Committee going forward. Ross Brown, Corporate Director of Finance & Resources confirmed to committee members that the Commercial Director contributes to decisions but is not a decision maker. Details would be confirmed to committee members and the communication tracked in the Committee’s action log.

Subject to this amendment, the minutes of the meeting held on 25 November 2022 were confirmed as a correct record and were signed by the Chair.

Report of the Corporate Director for Finance and Resources

James Rhodes, Head of Analysis and Insight, introduced the presentation of the paper on the Together for Nottingham Plan, Theme 1 (MTFS) and Theme 8 (Council Plan). The following points were highlighted:

(a)  the Council’s Recovery and Improvement Plan, the Together for Nottingham Plan, was first published in 2021, with a refresh required within the first three months of the statutory intervention set out in the ‘Statement of Requirements’ received by the Council on 2nd September 2022. The Together for Nottingham Plan was refreshed in October 2022, building on the original Plan by adding an update on the position at the end of year one;

(b)  one of the priorities within the Together for Nottingham Plan was the creation of a new Performance Management Framework, joining up the Strategic Council Plan with Service Plans and linking this to the Medium Term Financial Plan;

(c)  the report gives an overview of the progress of Theme 1, Medium Term Financial Strategy (MTFS), and Theme 8, Council Plan, as the two are closely linked. The Council Plan is aligned with Divisional and Service Plans, which are fully costed and aligned to the Medium Term Financial Plan (MTFP), ensuring that activity in the Council Plan is kept within the Council’s budget;

(d)  there is a ‘golden thread’ running through the structure, by which the Strategic Council Plan (SCP) structures the Medium Term Financial Plan (MTFP), the MTFP Delivery Plan, Divisional Plans, Service Plans, and down to Individual Performance Appraisals;

Fiona Marsh, Interim Team Leader – Financial Strategy, presented the section of the report about Theme 1 (MTFS), and made the following points:

(e)  the key objectives are to achieve a balanced budget and a sustainable MTFP; reducing the Council’s reliance on commercialisation to fund core services, ensuring core services are affordable in the long-term and removing fluctuating dividend income from core funding; improving budget oversight and accountability with the promotion of CIPFA financial management standards;

(f)  work on the latest MTFP process commenced in June 2022, with discussions with senior leads, both officer and councillor; early agreement of key dates; early agreement of strategic priorities; clear decision-making ensuring that governance structures are followed; with robust challenges throughout the process; and to provide the Improvement and Assurance Board with reassurance that the MTFP provides a good strategic financial framework for maintaining sustainability;

(g)  a number of key activities underpin the MTFP process: the Transformation Programme is critical to developing business cases for future savings; business as usual savings; review of growth; review of fees, charges, and commercial income; and the review of reserves;

(h)  the Chief Executive led an ‘85% challenge’ exercise, asking officers to consider what could be delivered within 85% of their base budget resources, as a means of identifying saving proposals, which have fed into the MTFP;

(i)  two key documents have been used to standardise the information provided when making the case for new savings and new growth for inclusion in the MTFP, known as ‘R1’ and ‘R2’ documents. ‘R1’ gives  ...  view the full minutes text for item 60.

Report of the External Auditors, Grant Thornton

Andrew Smith, the Key Audit Partner from Grant Thornton, presented the report of the External Auditors on the Selective Licensing Scheme for 2019/20. The following points were made:

(a)  local electors have a right to make objections to the accounts of local authorities, and Grant Thornton received a purported objection to the Council’s 2019/20 accounts in relation to the Selective Licensing scheme. The request did not meet the statutory requirements for a formal objection, but given the subject matter of the objection request it was felt to be appropriate to conduct a review and produce this report;

(b)  the would-be objector outlined a number of concerns:

  i.  the scheme is highly bureaucratic and time-consuming for landlords to comply with;

  ii.  the scheme is too broad in focus, targeting good as well as bad landlords;

  iii.  the scheme is not value for money, with a low number of inspections carried out;

  iv.  the scheme has had an adverse effect on some tenants, leading to increases in rents and in some cases to tenancies being terminated, causing an increase in homelessness;

  v.  licence fees are disproportionately high;

(c)  given these concerns, the purpose of this review was to assess how far the Selective Licensing scheme was achieving the intended policy aims and providing Best Value;

(d)  the report identifies a number of issues:

  i.  there were problems with the application process;

  ii.  the planned number of inspections was not being carried out;

  iii.  the Council was struggling to monitor the outcomes of the scheme, which was a common issue identified in a national review of Selective Licensing schemes across the country;

  iv.  there is some supporting evidence to show unintended consequences in terms of rent increases, but difficult to conclude these were solely due to the Selective Licensing scheme;

(e)  in terms of fees and costs, the scheme was broadly in the same range as other comparable schemes across the country;

(f)  the implementation of the scheme had not gone entirely as planned, in part due to the impact of Covid-19, and implementing Covid-19 guidance led to the policy’s aims for internal inspections being delayed by more than a year, national shortages of Environmental Health Officers qualified to inspect were also a factor. Inspections targets would not be achieved before the scheme end date but resources were in place from the scheme to continue inspections. Also actual application flows and the split between accredited and non-accredited applications had differed markedly from forecasts. However, officers have recognised issues and learned lessons which will inform the second scheme which is due to be launched later this year.

Pete Mitchell, Head of Regulations, highlighted the point that the first Selective Licensing scheme is now in its fifth and final year before a new scheme is launched. He agreed that there were errors at the beginning of the scheme which have been identified, and is supportive of the audit.

In the discussion which followed and in response to questions by the Committee, the following points were  ...  view the full minutes text for item 61.

Report of the External Auditors, Grant Thornton

Andrew Smith, the Key Audit Partner from Grant Thornton, presented the Interim Value for Money (VFM) Report of the external auditors. The following points were highlighted:

(a)  the report follows on from the verbal report delivered by Grant Thornton to the Committee in November 2022;

(b)  in the External Audit Update delivered to Audit Committee in February 2022, three areas of significant weakness were identified:

  i.  Financial sustainability;

  ii.  Companies governance arrangements;

  iii.  Delays to annual accounts production and finalisation;

(c)  the report has identified progress in all three areas, though they do remain significant weaknesses for the Authority;

(d)  the latest report has identified a further five weaknesses:

  i.  failure to secure improvements in Children’s Services;

  ii.  significant inconsistencies between budget and the final outturn in 2021-22;

  iii.  unlawful transfer from the Housing Revenue Account to the General Fund;

  iv.  lack of management capacity due to recruitment and retention issues, particularly in corporate and key services;

  v.  Council not able to demonstrate Best Value through procurement, including non-compliance and identified retrospective approvals.

Ross Brown, Corporate Director of Finance and Resources, responded to say that the Council recognises the seriousness of the weaknesses that have been identified by Grant Thornton. The report itself notes that the weaknesses identified are being addressed already through the Council’s Recovery and Improvement Plan. All recommendations have been accepted and will be implemented.

In the discussion which followed, and in response to questions by the Committee, the following points were made:

(e)  the overall level of gross debt is high when compared to other core cities, as is the cost of servicing that debt. However, it is important to distinguish between different kinds of debt, and prioritise the reduction of net debt rather than gross debt, and complete cost-benefit analyses regarding the impact on revenue from reductions in certain kinds of debt;

(f)  debt needs to be understood in the context of the specific assets that it supports. For example, the debt connected to the tram network is a significant conscious choice with debt payments covered through the PFI system and through the Workplace Parking Levy, which skews comparisons with other core cities where the tram network sits with the transport authority. There is also debt connected to the City’s ownership of its council housing, and to the commercial portfolio held by the City;

(g)  it is crucial to find a manner of explaining the nature and composition of the Council’s debt in a way that better helps citizens to understand how their city is governed. Not all debt is bad, much can be seen as markers of investment in the City, an expression of the ambitions that Members have for the City;

(h)  the Council is currently disposing of a lot of assets, and Members sought assurances that assessments were being completed in each case to prove the business case for each sale, especially where disposal means the loss of an income stream. Members commented that assurance on this could potentially be included on  ...  view the full minutes text for item 62.

Report of the Corporate Director for Finance and Resources

Jean Stevenson, Interim Finance Team Leader – Technical Team, presented the report on the Treasury Management Strategy 2023/24 and Capital Strategy 2023/24. The following points were highlighted:

(a)  The Treasury Management Strategy and Capital Strategy are produced annually, in line with Chartered Institute of Public Finance and Accountancy (CIPFA) codes and guidance from the Secretary of State;

(b)  the strategies have already been recommended to Full Council for approval on the 6 March 2023 for approval by the Executive, and are being presented to allow the Committee the opportunity to review the strategies prior to Full Council;

(c)  the Treasury Management Strategy 2023/24 includes the Minimum Revenue Provision Statement, the Borrowing Strategy, the Investment Strategy, the Prudential Indicators and Limits for 2023/24 to 2025/26, and the associated Treasury Management Policy Statement;

(d)  the Capital Strategy 2023/24 includes the Voluntary Debt Reduction policy, and the Flexible Use of Capital Receipt policies for 2022/23 and 2023/24;

(e)  the strategies take account of revisions to the CIPFA Treasury Management Code of Practice in December 2021. These revisions include a tightening of the regulations around commercial investments, and Local Authorities are no longer allowed to borrow to purchase investment properties primarily for yield;

(f)  the Council’s policy is that only secured and banked capital receipts will be considered in decisions to fund capital schemes, and consideration will not be given to any new capital schemes to be funded by borrowing;

(g)  also of note is the new liability benchmark in the Treasury Management Strategy. This is explained and shown graphically in the Treasury Management Strategy. This is difficult to calculate, as it requires cashflow forecasts for many years into the future, and external advisors are still working to help develop the indicator.

In the discussion which followed, and in response to questions from the Committee, the following points were made:

(h)  the new CIPFA standards are a response to investments that expose local authorities to disproportionate debt costs, who do not have the capacity to service these when risks present themselves and find they need to seek support from central government. The new regulations are intended to curtail the ability of local authorities to invest primarily for yield and return;

(i)  Members considered it important to build slippage into the models, as it can make a difference to capital flows and has implications in terms of revenue allocation. The finance team seek to monitor slippage by reprofiling and performing slippage exercises;

(j)  Members appreciated the delivery of the Liability Benchmark indicator, which visualises the profile of debt; 

(k)  the Liability Benchmark currently shows a sharp drop in Public Works Loan Board (PWLB) debt from 2028 onwards; officers clarified that the tool is still being developed and work is continuing to be completed on forecasting. Further information would be provided to councillors directly on this and on slippage. The CIPFA requirements are that the LB is estimated and measured for the forthcoming financial year and the following two financial years as a minimum;

(l)  Members  ...  view the full minutes text for item 63.

Report of the Corporate Director for Finance and Resources

Jean Stevenson, Interim Finance Team Leader – Technical Team, and Ross Brown, Corporate Director of Finance and Resources, delivered the report on the Review of Accounting Policies 2022/23. The following points were highlighted:

(a)  Part 3 of the Annual Accounts and Audit Regulations 2015 (the Regulations) requires the Council to produce an annual Statement of Accounts. In accordance with International Financial Reporting Standards (IFRS), the Statement of Accounts must include a statement of accounting policies;

(b)  the Regulations also require a draft of the Statement of Accounts to be prepared and certified by the responsible financial officer by 31 May in accordance with best practice for local authorities, and the draft accounting policies should be reviewed by Audit Committee before the draft 2022/23 Statement of Accounts is produced;

(c)  where IFRS allows a degree of choice, Audit Committee should be aware of and confirm the choices made;

(d)  local authorities are afforded the option to voluntarily implement the new IFRS 16 Leasing standard in the 2022/23 accounts ahead of the mandatory deadline of 2024/25. Due to ongoing audit issues, Nottingham City Council has delayed publishing audited financial statements since 2019/20. In common with many other local authorities, the Council has therefore decided to implement IFRS 16 in 2024/25;

(e)  there are no significant changes to the policies. Grant Thornton will audit the policies and any changes agreed with them will be reported to the Audit Committee;

(f)  while the policies are remaining stable, the Finance team is focusing work on the practices that sit alongside and support these policies, to ensure improvement in the processes and rules by which the Council enacts these policies.

Resolved to:

1)  Agree the Statement of Accounting Policies for inclusion in the 2022/23 annual accounts (within appendix 1);

2)  Agree the proposals where International Financial Reporting Standards (IFRS) allow a degree of choice;

3)  Agree that the Council is not voluntarily adopting IFRS 16 in advance of mandatory implementation in 2024/25.

Report of the Corporate Director for Finance and Resources

Shail Shah, Head of Audit and Risk, presented the Internal Audit Progress Report Q1-Q3 2022/23, and highlighted the following points:

(a)  the report provides an update on the work of the Internal Audit team. Internal Audit helps the organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes;

(b)  the report provides:

  i.   a summary of final Internal Audit reports issued in 2021, 2022, and up to 27 January 2023;

  ii.  tracking of completion of high priority recommendations by the service areas concerned;

  iii.  a summary of the position against the updated Internal Audit Plan 2022/23.

Resolved to:

1)  Note the progress reported in respect of high priority recommendations;

2)  Note the areas marked as Limited Assurance;

3)  Note the progress made on the Internal Audit Plan 2022/23.

Report of the Corporate Director for Finance and Resources

Andrew Smith, External Auditor for Grant Thornton, left the meeting for this item.

Shail Shah, Head of Audit and Risk, presented the report on the Appointment of the External Auditor. The following points were made:

(a)  the auditor is appointed to undertake the statutory audit of accounts and Best Value assessment of the Council in each financial year, in accordance with all relevant codes of practice and guidance;

(b)  the appointed auditor is also responsible for investigating questions raised by electors and has powers and responsibilities in relation to Public Interest Reports and statutory recommendations;

(c)  the Council opted into the ‘appointing person’ national auditor appointment arrangements established by Public Sector Audit Appointments (PSAA) for accounts covering 2018/19 to 2022/23 and more recently for accounts covering 2023/24 to 2027/28. Following a national procurement exercise PSAA appointed Grant Thornton to audit the accounts for the period covering the accounts for 2018/19 to 2022/23;

(d)  Following a national procurement exercise in 2022, PSAA have appointed Grant Thornton for a further five financial years, 2023/24 to 2027/28, and notice of the appointment has been published on the Council’s website as required.

In response to questions from the Committee, the following points were made:

(e)  the report states that PSAA’s current policy on rotation of key staff would preclude the reselection of a Key Audit Partner for the period from 2023, and that PSAA prefers shorter terms for audit appointments. Members advised they were impressed by the latest appointed Key Audit Partner and were worried about a loss of continuity, however there is a balance to be struck between continuity and rotation so that external auditors do not become too familiar with the authority. This decision rests with PSAA, but it is possible that rotation will not be enforced due to the recent change in Key Audit Partner.

Resolved to note the appointment by Public Sector Audit Appointments Ltd (PSAA) of Grant Thornton to continue as the external auditor for the Council for five financial years from 2023/24 to 2027/28, and that notice of the appointment has been published on the Council’s website as required.

For noting/discussion

Shail Shah, Head of Audit and Risk, introduced the discussion of the Work Programme 2022/23. The following points were discussed:

(a)  there is provision within the proposed budget for 2023/24 for a new post within the Governance Team that will provide additional support to the Audit Committee;

(b)  after a request by the External Auditor, in November 2022 Ernst and Young were appointed to complete a third party review of the management override of controls. At the 25 November 2022 Audit Committee meeting, the External Auditor expressed concerns about the scope of the review, and advised that they would be writing to the Chief Executive and the Section 151 Officer to articulate those concerns.  As agreed at that meeting, the Chair of Audit Committee has received a copy of the letter, and will circulate it among Members. Members requested that they receive the Ernst and Young report when it is ready. It was agreed that this would be most appropriately done through a presentation of the report to the Audit Committee as an agenda item alongside a briefing from officers when it is finalised;

(c)  31 March 2023 will be the final meeting of the Audit Committee for the municipal year. Members would like an item included in the Work Programme for the March meeting or a separate meeting, to reflect on the year’s activity, request feedback from committee Members who will be leaving the Council or the Committee, and to look at a potential roadmap for the next year’s activities.

Resolved to:

1)  Amend the Work Programme to include an agenda item for the meeting on 31 March 2023 or a separate meeting, to reflect on the year’s activity, seek feedback from outgoing Members, and discuss the possible direction of the Committee over the forthcoming year;

2)  Amend the Work Programme to include an agenda item to present and discuss the third party review of the management override of controls by Ernst and Young, once the report is finalised.

For noting/discussion

Shail Shah, Head of Audit and Risk, introduced discussion of the Recommendation Tracker. The following points were discussed:

(a)  the External Auditor’s letter to the Chief Executive on the management override of controls has been received by the Chair of the Audit Committee, as logged in the Recommendation Tracker. Members requested that the letter be circulated among the Committee;

(b)  Members commented on the importance of clarification about access to information.

To consider excluding the public from the meeting during consideration

of the remaining item in accordance with Section 100A(4) of the Local Government Act 1972 on the basis that, having regard to all the circumstances, the public interest in maintaining the exemption outweighs the public interest in disclosing the information

The Committee decided to exclude the public from the meeting during consideration of the remaining agenda items in accordance with Section 100A(4) of the Local Government Act 1972 on the basis that, having regard to all the circumstances, the public interest in maintaining the exemption outweighed the public interest in disclosing the information, as defined in paragraphs 3 and 4 of Part 1 of Schedule 12A of the Act.

Report of the Director for HR and EDI

Daljit Singh Nijran, Organisational HR Manager, presented the report on Corporate Recruitment Challenges the Nottingham City Council’s Response, on behalf of the Director for Human Resources and Equalities, Diversity, and Inclusion Richard Henderson.  The Committee discussed the information provided.  Detail of the discussion is set out in the exempt minutes.

The Committee discussed a matter relating to issues raised under the External Auditors Interim Value for Money report that contained information exempt from publication under Paragraph 1, Part 1 of the Schedule 12A of the Local Government Act 1972.  Having regard to all the circumstances, the public interest in maintaining the exemption outweighs the public interest in disclosing the information because it relates to a matter of ongoing concern.

A Committee member cited a situation that they believed was an example of issues with compliance with procurement regulations, and how non-compliance is dealt with. 

Resolved:

1)  To Request the Corporate Director of Finance and Resources to follow up with the Monitoring Officer about the outstanding enquiry;

2)  For the Chair of Audit to send a letter to the Chief Executive requesting a response on the issue.